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Monday, June 6, 2016

Paul Krugman, "A Pause That Distresses": Don't Panic?

A mere month ago, in a New York Times op-ed entitled "The Diabetic Economy," Paul Krugman wrote from Lisbon:

"Things are terrible here in Portugal, but not quite as terrible as they were a couple of years ago. The same thing can be said about the European economy as a whole. That is, I guess, the good news.

The bad news is that eight years after what was supposed to be a temporary financial crisis, economic weakness just goes on and on, with no end in sight. And that’s something that should worry everyone, in Europe and beyond."

However, according to Paul, everything was hunky-dory in the US:

"Meanwhile, the overall economic and political situation in America gives ample grounds for hope, which is in very short supply over here."

"Should this pause worry you? Yes. Because if it does turn into a recession, or even if it goes on for a long time, it’s very hard to envision an effective policy response."

Krugman nevertheless proposes:

"For the simplest, most effective answer to a downturn would be fiscal stimulus — preferably government spending on much-needed infrastructure, but maybe also temporary tax cuts for lower- and middle-income households, who would spend the money. Infrastructure spending makes especially good sense given the federal government’s incredibly low borrowing costs: The interest rate on inflation-protected bonds is barely above zero."

Ah yes, infrastructure spending and tax cuts, which would all be well and fine if Obama had not taken American's national debt to an unsustainable $19.3 trillion, amounting to some $60,000 of debt per citizen or more than $161,000 per taxpayer.

Did you happen to see the movie "The Big Short," which tells the stories of those who foresaw the collapse of collateralized debt obligations, which in turn brought the American economy to its knees in 2008? In fact, the American economy is also teetering, but no one wants to acknowledge it.

2 comments:

best federal government policy to stimulate private sector jobs would be to STOP the federal regulations that only create jobs for some lawyers who failed history, and cause everyone else to focus on compliance instead of business.

After all, as of April 2016, the US housing market is in a new frenzy ( especially with zombie foreclosures and flips), retail sales up, but employers are drowning in new regulations.

No level of government can even put people to work dealing with invasive, tree-killing plants because there are too many regulations for local governments to transcend.

Perhaps the new icon of America is Bill de Blasio calling for a boycott of a new Chik-fil-a restaurant in Manhattan, because ideological purity is far more important than a successful job-creating business.

Want to solve the affordable housing crisis in NYC? mandate licensing requirements for building managers and managing agents who currently need not know the difference between dry wall and plywood. Then maybe the money to repair apartments would actually lead to repairs that enable the residents to get some sleep instead of more cases for Housing Court, after the money is spent on illegal contractors doing work for show.

"...The headline (U-3) unemployment rate plummeted from 5.0% to 4.7% during May, but this was pure illusion, a result of plunging labor force participation (LFP). Adjusted to the LFP that obtained when Bush 43 left office, May's unemployment rate was 9.3%, nearly twice the official number.

Falling LFP has been one of the most distinctive features of the Obama economy. May's LFP was down by 4.74 percentage points from its April 2000 peak. This is equivalent to 12.0 million Americans giving up on finding jobs.

Since November 2007, our working-age population has increased by 20.0 million. However, on the margin, only 4.5 million of these people entered the labor force, and only 3.3 million of them landed FTE jobs. This might be "the new normal," but it certainly isn't "prosperity." ..."